Geithner said Greenspan was ‘terrific’ in 2006

The verbatim records include the January 31 meeting, which was the last FOMC meeting under former chairman Alan Greenspan. This was the apex for Greenspan’s career.

Praise for his leadership and steady hand during his eighteen-and-a-half year tenure at the helm of the central bank dominated financial press coverage as he met with the Fed’s top policy-makers for the last time. The fast-approaching financial crisis was not yet on the horizon.

According to the transcript, U.S. Treasury Secretary Timothy Geithner, who was then the president of the New York Fed, was effusive in his praise for the outgoing chairman. “I’d like the record to show that I think you’re pretty terrific too,” Geithner told Greenspan. (The context was other Fed members praising Greenspan.)

“And thinking in terms of probabilities, I think the risk that we decide in the future that you’re even better than we think is higher than the alternative.” Of course, that was one tail-risk that did not materialize.

Other highlights, or lowlights if you will, include the Fed’s inability to forecast the looming housing bust. For sure, the central bank saw slowing in housing, but didn’t come close to figuring out its impact on the economy.

Susan Bies — now a board member at Bank of America — said a housing pullback could actually help the economy.

“So I really believe that the drop in housing is actually on net going to make liquidity available for other sectors rather than being a drain going forward and that will also get the growth rate more positive than the current Greenbook forecasts,” she said in June 2006. The Greenbook is the Fed staff forecast.

And here’s a joke, told by Dave Stockton at the December 2006 meeting in relation to a particularly dry Greenbook. Stockton retired last year as research division director.

“I was reminded of the old joke about the man who is told by his doctor that he has only six months to live. The doctor recommends that the man marry an economist and move to North Dakota. The man asks whether this will really help him live any longer than six months. The doctor says, ‘No, but it sure will feel a lot longer.’”

– Greg Robb

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